My bright idea to curb surging energy bills: First Utility power boss who is wrestling with Big Six reveals his plan

Ian McCaig believes it is possible to save money on energy bills without donning a hairshirt but warns that Labour’s plan to freeze them next year is not the way forward.

McCaig, an Ayrshire-born son of a coal miner, is the former boss of internet darling Lastminute.com but has now switched industries entirely to become chief executive of First Utility. It is the biggest independent energy supplier in the country after the Big Six firms – British Gas, E.On, Npower, Scottish Power, SSE and EDF Energy – which dominate the market.

Privately-owned, it is the kind of firm the Government has in mind when it urges consumers to switch suppliers to find a better deal.

‘Join First Utility and spend less on energy – that is the essence of what we are about,’ says McCaig.

‘For consumers who have never switched energy provider before, we can save them an average of £400 a year. For those who, have it’s £200 a year. We want consumers to wake up and see they can keep their lifestyle, but spend less on it.

‘Personally, it doesn’t seem sensible to me to walk round my house in winter wearing a T-shirt and shorts, but that’s my choice and I don’t think it’s everyone else’s by any means. Technology can help consumers waste less energy without suffering any compromise on their lifestyle by optimising consumption.’

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It’s a message that appears to be reaching consumers: First Utility had customer numbers in the region of 100,000 three years ago and now that figure is understood to be about half a million.

Last month, the Energy Association released figures showing that two million consumers had switched to an independent energy provider – a moment McCaig calls a ‘milestone’ for the industry and a sign that the Big Six’s stranglehold on the market is weakening.

‘Three years ago independent providers had under 1 per cent of the market and now it’s 8 per cent and our business has grown commensurately over that period,’ he says.

It would seem a big change moving from a travel company to a utility provider, but for 48-year-old McCaig there is a fundamental similarity between the two.

‘Both are about using technology to disrupt an established market for the benefit of the consumer,’ he says. He can draw on considerable experience in this particular field: before Lastminute.com, McCaig was at Nokia, the mobile phone firm, where he worked on the introduction of 3G mobile internet, something that changed the way consumers used mobile phones forever.

OVERSEAS EXPANSION A POSSIBILITY, SAYS McCAIG

First Utility chief executive Ian McCaig also told The Mail on Sunday that he was looking at expanding the business into a suitably open market on to the Continent and had considered Germany or Holland.

Privately owned First Utility is one of the independent energy firms that has gradually increased its share of the market by offering deals that are cheaper than those of the major firms.

Smaller energy firms are not subject to all the costly environmental obligations that affect the biggest companies, though First Utility is now big enough to have to pay these levies

In the case of First Utility, which is privately owned while oil firm Shell has a small stake, it is using technology to allow consumers to take control of their energy consumption.

About ten per cent of First Utility’s customers have smart meters fitted, which is about ten times the national average.

Smart meters replace existing meters and do away with a need for estimates because they measure exact energy use. The details are then sent via mobile phone signals to energy firms.

In future, increasingly sophisticated appliances will be combined with energy monitors and data systems capable of sending texts and emails advising consumers to turn the heating down if temperatures are set to rise over the next 24 hours.

‘So far, the most a consumer’s bill has dropped after installing a smart meter is 30 per cent. The average is about 7 per cent – and if someone offered you 7 per cent off your energy bill you’d be delighted,’ he says. ‘But a smart meter is just a meter, it’s up to consumers to use the information: when you get to the point where consumers are engaged and can make decisions based on fact, not conjecture, that is when they will start to think about energy in the same way they do about food waste now, for instance.’

McCaig has a smart meter, naturally, and discovered his gas consumption was running at 30-40 per cent higher than other people living in similar houses nearby.

‘That got me interested. I live in an oldish house near Cambridge. I asked about a new boiler, discovered that over the past 15 years boilers have become 30 per cent more efficient, so I installed a new one which will pay for itself in savings in a few years.’

In a controversial plan, the Government would like to see smart meters in every home, though critics claim the cost could be up to £200 per household, while also citing security and privacy concerns over the system.

‘I think the potential privacy implications are right down the bottom of the list compared with anything we use that sends or stores information electronically, like credit cards.’

As part of the process of getting to that point, McCaig would like to see the Big Six’s grip on the energy market transformed, a point he has made to the Competition & Markets Authority, which is investigating the sector, and to the Labour Party, whose leader Ed Miliband is sticking by his pledge to freeze energy bills if he is elected next year.

‘Labour has identified the core issues causing the problems correctly enough – the dysfunctional wholesale market, the need to change regulation. But their remedy – a price freeze and scrapping Ofgem – is flawed,’ he says.

‘Are you going to freeze policy costs and taxes during that time, freeze network costs? What happens if it’s a bitter winter and demand for energy soars, can you build that into the price freeze?

‘We have to buy energy on the wholesale market two years ahead as more consumers join us. The Big Six would keep their prices where they are now, but the ability of the independents to do that is diminished. So at a stroke you compress competition.’

McCaig thinks scrapping Ofgem is unnecessary. ‘The regulator needs to be more focused on getting better prices for consumers and Ofgem has to have a stronger mandate to focus on competition. But don’t disassemble it and resurrect the same thing with a different name, just get its mandate right,’ he says.

He would support another part of Labour’s energy policy, its proposal to pool wholesale energy.

‘When you have a vertically integrated market where the energy retailers own the wholesalers, then they “self-supply” or match demand to supply, and there is an economic benefit to them in doing that. We believe what they produce needs to be freely traded, 12 to 18 months out,’ he says.

Tech-savvy McCaig, who uses his background in software engineering and IT to help charities including the NSPCC where he sits on its Childline board, clearly has a job on his hands, but he doesn’t lack determination: when he was younger he was so desperate not to quit during an arm-wrestling contest that his own arm snapped and he carries a metal plate in it to this day.